It has already been established (Abler v Sodexho, LELR Issue 86) by the European Court of Justice that TUPE applies to second generation transfers. Now the Court of Appeal has ruled in Fairhurst Ward Abbotts Ltd v Botes Building Ltd & Ors (IDS Brief 753) - see LELR Issue 85 for the EAT decision - that they also apply when only a part of the entity is transferred.

What were the facts?

In 1996, Botes Ltd won the contract to look after Southwark Borough Council's building maintenance services. A number of Southwark's employees transferred with the contract under TUPE (the Transfer of Undertakings Regulations). In 1998, Southwark decided to divide the original geographical area into two parts and invited separate tenders for each of them, on the basis that TUPE applied.

Fairhurst Ward Abbotts Ltd (FWA) won the contract for Area 2. There was no transfer of assets from Botes Ltd, but it argued that TUPE applied to the transfer of that contract, and therefore to the employees affected by it. The new contractor disagreed and refused to take them on. The employees launched unfair dismissal proceedings against both FWA and Botes.

What did the tribunal say?

The tribunal rejected the argument put forward by FWA - that TUPE could not apply because Area 2 had not existed as a discrete economic entity before it won the contract. 
The tribunal also said that FWA was liable for the unfair dismissal of six of the employees, but that Botes was liable for the unfair dismissal of two of them, including a Mr Salih, who was on sick leave at the time of the transfer.

What did the EAT say?

The employment appeal tribunal (EAT) agreed with the tribunal that TUPE applied to the transfer of Area 2 to FWA, but disagreed about the status of the employee on sick leave. It said that the tribunal should have asked whether in fact he would have been working in the relevant part, had he not been off sick at the time.

What did the Court of Appeal decide?

FWA again argued that for there to be a TUPE transfer, there had to be an identifiable, stable economic entity. And the Court agreed to the extent that there cannot be a transfer of an undertaking under TUPE unless some stable, economic entity can be identified as having existed before the transfer.

But that's where the Court parted company with FWA because it went on to reject their argument that a 'part' has to exist as an identifiable, stable entity before the transfer. 
Instead, the Court said that TUPE can apply when a part of the original entity becomes identifiable in its own right for the first time, at the time that it separates from the whole. It took the view that it would be contrary to the aims of TUPE if the rules did not apply when that happened.

This was consistent with the decision in Hassard v McGrath & Ors (1996, NILR 586) which said that there has to be an economic entity capable of being transferred, but the part being transferred does not need to have been a separate or distinct part of the entity beforehand.

What about absent employees?

This decision also clarifies the position of employees who are off sick or on maternity leave at the time of the transfer. According to the Court of Appeal, what matters is whether the employee's contractual place of work was in the part of the undertaking transferred. It agreed with the EAT that the matter should be remitted to a tribunal to ask where this employee would have been placed, had he been well enough to work.